Inflation dynamics and the output-inflation trade-off: international panel data evidence

Bakas, D. ORCID: 0000-0003-4771-4505 and Chortareas, G., 2019. Inflation dynamics and the output-inflation trade-off: international panel data evidence. Economic Inquiry, 57 (4), pp. 2110-2124. ISSN 0095-2583

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We explore the impact of inflation and its variability on the output-inflation trade-off using a unified single-step approach in a panel data context. A limitation of earlier empirical approaches is that they focus to either cross-country or country-by-country time-series analyses. This paper employs a dynamic heterogeneous panel data specification and uses an all-encompassing estimation framework that accounts for parameter heterogeneity, cross-sectional dependence, dynamics, and non-stationarity. Our sample covers 60 countries from 1970 to 2010. While inflation variability reduces the trade-off for specific periods and country groups, an unambiguous and more pronounced negative relation emerges between the inflation rate and the responsiveness of real output to nominal shocks. The findings are in line with the New Keynesian view of a negative association between the rate of inflation and the output-inflation trade-off, as well as with the observed flattening of the Phillips curve over the past decades.

Item Type: Journal article
Publication Title: Economic Inquiry
Creators: Bakas, D. and Chortareas, G.
Publisher: Wiley-Blackwell
Date: October 2019
Volume: 57
Number: 4
ISSN: 0095-2583
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 16 Apr 2019 09:43
Last Modified: 29 Apr 2020 03:00

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